Project report prepared for United Nations Department of Economic and Social Affairs

Abstract: This study was commissioned by the United Nations Department of Economic and Social Affairs (UNDESA) as an input into the UN World Economic and Social Survey for 2007, which focuses on ageing. It develops projections of the cost of the national health system in Sri Lanka for the period 2005ó2101, utilising an actuarial-cost projection methodology, similar to the approach used in official projections prepared in developed economies, such as USA, UK and Hong Kong SAR. By taking data from the disease-specific health accounts for the country, it is also possible to make some assessment of the implications of the changing age structure for the disease composition of expenditures.

During 2005-2050, the Sri Lanka population will increase only modestly by 10-15% to 20-23 million. In this scenario, population ageing can be expected to add 0.4-0.9% of GDP to overall national health spending by 2050, but this is likely to be only one part of the overall increases in expenditures.

The analysis undertaken points to the following conclusions:

(1) Total health spending in Sri Lanka will reach 6-8% of GDP by the time its populationís stable age structure begins to stabilize. This level of spending is similar to that of the lower spending OECD economies today.

(2) The most significant cost driver of national health expenditures will be underlying changes in the propensity of individuals to use medical services when ill. Historically, the age-sex adjusted rates of utilisation of medical services have risen by 1-3% per annum. Even if future increases in age-sex adjusted outpatient contact rates moderate to only 1% per annum, this will add 1-2% of GDP to health system resource requirements. However, if quality in inpatient services is improved, such expenditures may also increase.

(3) The second most important cost driver is changes in the age and sex structure. Over time, the percentage of women is increasing, and the increase in the elderly population is more than sufficient to balance the reductions in the size of the youngest age groups. Demographic change will add 0.4% of GDP to health system resource requirements by 2025.

(4) The third most important cost-driver is productivity change in the public sector health services. Sri Lanka has historically experienced high rates of non-quality adjusted productivity improvement leading to sustained reductions in unit costs of services delivered. It is difficult to forecast the future trend in productivity change, but if unit cost changes consistent with historical experience, then this will reduce resource requirements in the health system by 0.4 to 0.5% of GDP.

(5) The cost driver, the impact of which is most difficult to predict and yet can have the largest impact, is price inflation in the private sector. In the absence of reliable data on these price trends, private sector price inflation is concluded to have minimal net effect, with the qualification that the actual impact could range from adding 0.1% to 3% of GDP to overall expenditures.

(6) Given the higher rates of cost increase in the private sector and also the higher unit costs of treatment in the private sector, it is found that if the public role in the health system delivery is reduced that costs will increase more. This indicates the importance of maintaining a strong public presence in delivery to mitigate cost increases.

(7) Expenditures for non-communicable disease are already the major components of spending in Sri Lanka, and their share is likely to increase in the next few decades, in particular those of cardiovascular disease, diabetes mellitus and chronic respiratory disease. These trends will result in the overall levels (as share of GDP) and pattern of spending in Sri Lanka by 2050 being quite similar to that of OECD countries today.